A look at 8 tax-saving funds

By Morningstar Analysts |  07-02-19

Sundaram Diversified Equity Fund

(click on the above to access the brief analyst note)

  • Star Rating: 2 stars
  • Analyst Rating: Neutral
  • Fund Manager: S Krishnakumar

We believe in Krishnakumar’s ability to identify and invest in stocks that tend to exhibit growth characteristics over the fund’s three- to five-year investment horizon. Krishnakumar follows a combination of a top-down and bottom-up approach, and seeks to invest in growth stocks that can tend to double over the fund’s investment horizon. While the fund house has a fairly strong thematic undercurrent that drives sector selection, stock selection remains primarily driven by fundamentals.

The manager tries to balance the stock’s perceived return, growth, and valuations while maintaining a lower liquidity risk. The manager combines absolute and relative valuation techniques using discount cash flow models and quantitative ratios such as return on equity, enterprise value/EBITDA, price/earnings, and price/book value, among others to make investment decisions.

Research analysts use a 5S model to evaluate a business in terms of sustainability, scalability, soundness of promoters, sustainable competitive advantage through strong brand promotion, and sustainability of cash flows. They look at investing in high-quality companies with differentiated businesses.

Risk is constantly monitored by adhering to internal stock and sector limits. In addition, they also limit the total share of the free float of a company held as a fund house.

The fund adopts a multi-cap strategy. The exposure of mid-caps in the portfolio is currently at around 35%-50% and can change significantly based on the availability of ideas and investment avenues that are in line with the fund’s strategy. Managers take lower issue-specific risks, with individual stocks rarely accounting for more than 5% of the portfolio and the top 10 stocks accounting for roughly about 30% of the total assets. The portfolio is fairly diversified and can tend to deviate significantly compared with the fund’s benchmark weightings.

Individual stock bets can tend to look quite different compared with the index, with the fund holding some significant overweight positions and off-benchmark stocks as part of the fund. Krishnakumar also tends to hold benchmark stocks with a view to protect his downside risks and will trim at the margin rather than completely exiting a stock to generate alpha.

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